Italy's Target 2 liabilities hit new record high

MILAN, Dec 7 (Reuters) - The Bank of Italy’s liabilities towards other euro zone central banks rose to a new record high in November as Italians invested abroad and political instability kept foreign investors away.

The Bank of Italy’s position within the Target 2 system, which settles cross-border payments in the euro zone, is monitored because its rising can indicate financial stress.

Bank of Italy data showed the Target 2 balance rose to 358.6 billion euros ($384.5 billion) in November from 355.5 billion euros in October.

It has risen by 129 billion euros in the 12 months through November and it stands well above a 289 billion euro peak reached in August 2012 at the height of the euro zone crisis.

At the time, capital flight drove the Target 2 balance higher as foreign investors dumped Italian government bonds and withdrew their funding to Italian banks.

Economists have said political instability in Italy ahead of a Dec. 4 referendum that prompted Prime Minister Matteo Renzi to resign has dampened foreign demand for Italian assets.

According to The Bank of Italy, the rise witnessed in recent months mainly reflects changes in the investment portfolios of Italian households, as record-low government bond yields encourage them to invest in foreign assets. ($1 = 0.9327 euros) (Reporting by Valentina Za, editing by Isla Binnie)